USDCAD – Canadian Dollar Quiet Ahead of Canadian, US Job Reports

The Canadian dollar has ticked higher in the Thursday session. Currently, USD/CAD is trading at 1.2975, up 0.16% on the day. On the release front, Canada releases ADP Non-Farm Employment Change. In the US, unemployment claims is expected to drop to 227 thousand, and the Philly Fed Manufacturing Index is forecast to fall to 23.1 points. On Friday, the US releases three key events – Building Permits, Housing Starts and Preliminary UoM Consumer Sentiment. Canada will publish Foreign Securities Purchases and Manufacturing Sales.

What can we expect from the Bank of Canada? Earlier in the week, BoC Governor Stephen Poloz sounded dovish about future rate hikes. Poloz said that there was slack in the labor market, leaving room for the economy to grow without generating inflation. Investors took this as a message that the BoC is in no rush to raise rates anytime soon, and the Canadian dollar lost ground on Tuesday. Poloz added that any rate increases would be “gradual” and dependent on economic data. It seems clear that the BoC will not be able to match the Fed pace of rate hikes, as the US economy continues to outpace its northern neighbor. As well, the future of NAFTA is up in the air, with the US threatening to withdraw from the agreement if Canada and Mexico do not make far-reaching concessions to the US. This means that the Canadian dollar could be in trouble, as rate hikes in the US will make the greenback more attractive to investors.

The Federal Reserve is widely expected to raise interest rates next week. According to the CME Group, the odds of a quarter-point raise stand at 89 percent. What can we expect from the Fed during the year? The pressing question is how many rate hikes will we see in 2018. The current Fed projection remains at three hikes, but the superb nonfarm payrolls report last week has raised speculation that the Fed could accelerate the pace to four hikes, which would be good news for the US dollar. Investors will be keeping a close eye on key US data, especially inflation indicators. If these numbers improve, we’re likely to see four rate hikes in 2018.

USD/CAD Fundamentals

• 8:30 Canadian ADP Non-Farm Employment Change

• 8:30 US Empire State Manufacturing Index. Estimate 14.9

• 8:30 US Philly Fed Manufacturing Index. Estimate 23.1

• 8:30 US Unemployment Claims. Estimate 227K

• 8:30 US Import Prices. Estimate 0.3%

• 10:00 US NAHB Housing Market Index. Estimate 72

• 10:30 US Natural Gas Storage. Estimate -99B

• 16:00 US TIC Long-Term Purchases. Estimate 35.9B

• 8:30 Canadian Manufacturing Sales

• 8:30 US Building Permits. Estimate 1.33M

• 8:30 US Housing Starts. Estimate 1.30M

• 10:00 US Preliminary UoM Consumer Sentiment. Estimate 99.6

• 10:00 US JOLTS Job Openings. Estimate 5.85M

Open: 1.2954 High: 1.2975 Low: 1.2946 Close: 1.2975

USD/CAD Technical

USD/CAD was flat in the Asian session and has edged higher in European trade

• 1.2920 is providing support

• 1.3014 is the next line in resistance

• Current range: 1.2920 to 1.3014

Further levels in both directions:

• Below: 1.2920, 1.2865, 1.2757 and 1.2630

• Above: 1.3014, 1.3165 and 1.3260